The Best Way To Collect Rent & Rent Collection Services

What’s the best way to collect rent, how and when should we do it?

Cash, direct debit, standing order? All viable options, and I’ll go through them all, plus a few others. Moreover, there are dedicated “rent collection” services available (which really aren’t as expensive as you may think) for those landlords that don’t want any part in collecting [and sometimes “chasing”] rent.

This blog post takes a look at the options available, so you can decide which best suits you.

While the above is not an exhaustive list of a landlord’s legal obligations, they are specifically required to be complied with in order to help manage any problems when collecting rent. For example, if you don’t meet the above obligations, you may run into problems repossessing your property in the most efficient way in the event that your tenant stops paying rent. For more details, you may want to jump over to my Landlord Regulation Checklist For New Tenancies blog post.

When does rent need to be paid?

Generally, most landlords require rent in advance, which means, for example, if rent is paid monthly and is payable on the first day of the month, the tenant pays rent for August’s rent on the 1st August, and not 1st September (end of the month).

However, as highlighted on the Landlord Law Blog: under the general law, if your landlord does not provide a tenancy agreement specifying that rent is due in advance, then rent is payable in arrears.

Various ways I have received & collected rent

Over the years of being a landlord I’ve received rent in various different ways, although none should come across as utterly surprising…

Cheque

Standing Order (not Direct Debit)

Cash

I’m not entirely sure if there are other ways of receiving rent, but I think I listed the most common methods. Then again, I’m sure there is a network of seedy landlords accepting payment in forms other than money. Maybe when I get a little older, a bit wrinklier, and a lot less attractive, I’ll be jumping on the bandwagon, and accepting in those “other” ways…

I’m sure each landlord has their own personal favourite for different reasons. While I can guess which is the most desired method, I’m sure some landlords have their own unique circumstances which will sway from the obvious choice.

My analysis of each payment method

Cheque

Cheques are kinda’ irritating and extremely old school, that’s why they’re becoming extinct. But you still get those die hard fans that just won’t let go.

The problem with cheques is that they need to be posted, and then once received, they needs to be deposited it into a bank. Not to mention the 3-5 working day clearance time. The entire process is just long, and that’s why this is my least preferred method.

Needless to say, this method opens up a huge window of opportunities for tenants to lie through their teeth. It’s just inviting them to say, “The cheque must have got lost in the post. I sent it, I swear”

Yeah, right, asshole!

Standing Order

My favourite method because they’re easy to setup and reliable. Also, electric transactions leave behind a foot-print, so it’s incredibly easy to track/prove what has been paid and when.

Standing orders payments in general are typically used to make rent payments. This is when a tenant tells their bank or building society to make regular payments to a particular bank (i.e. the landlords bank). They’re incredibly easy to setup these days- most banks allow you to it online.

Standing Orders are often confused with Direct Debits, but there are distinct differences, but in most cases, tenants should be setting up a Standing Order to pay the landlord. The main difference between the two is that with a direct debit you tell your bank or building society to let an organisation take money from your account, so for example a monthly gas bill (which is likely to change every month, depending on usage). A Standing Order is fixed, you set them up to pay exactly the amount you choose, not the amount you owe to an organisation.

Cash

I’ve had one tenant pay directly by cash before. I have no idea why, but I didn’t ask any questions (it’s always best not to).

It’s not the most ideal method, but I didn’t mind too much. The catch here is that I had to collect it every month, but he didn’t live too far, so it was cool.

The bonus with my situation was that it gave me an opportunity to see what condition the property is in. So I was effectively doing a monthly inspection. However, one of the major drawbacks with cash payments is that unlike electric transactions, it doesn’t create a foot-print (maybe that’s what you want though… but that’s your business!), so you should create a receipt, which can be relied upon if there are any disputes.

Be warned though, cash payers are notoriously higher-risk, because there’s usually a reason for why they want to pay cash, and those reasons aren’t always very desirable.

What about Direct Debit?

Many people, landlords and tenants in this case, get Direct Debits confused with Standing Orders.

In 99% of times, when a landlord says they want the rent paid by Direct Debit, they actually mean Standing Order.

In order to setup a Direct Debit, the tenant must sign a mandate to allow the landlord to deduct the rent from the tenant’s account each month. The landlord will then be able to change the amount at their whim. So with Direct Debits, the landlord is taking the money from the tenant’s account.

Standing Orders work the opposite way round, because this is when the tenant sends the money to the landlord (i.e. sets up a fixed amount to transfer to the landlord each month), so no mandate is required, and the landlord has no control over how much is sent.

Conclusion – The Best Method of collecting rent

For me, there’s only one clear winner, to accept rent by Standing Order. It’s easy, reliable and secure!

Landlords, how do you currently collect rent, and which method do you most prefer?

Tenants, how do you pay rent?

Rent Collection Service

If you’re using a letting agent to manage your let, then the odds are they’re collecting the rent on your behalf. That’s all pretty standard.

However, many landlords use services that just handle rent collection – and nothing else. It’s generally cheaper than a fully managed service, which typically includes rent collection, handling of repairs and maintenance, tenant viewings, inspections etc.

So why would a landlord use a pure rent collection service? Because it’s generally a more reliable means of collecting rent, and it means the landlord can avoid getting directly involved with any disputes over rent, should any occur.

Rent collection service is pretty self-explanatory; you pay a third party company to be responsible for collecting the rent from your tenant, and they will then transfer the rent into your account, typically minus their handling fee.

There are various types of rent collection services, which usually vary on how much protection you receive. So if you plan on using one, make sure you’re aware of what you’re actually paying for. For example, many of the basic (and cheaper) rent collection services won’t “guarantee” the rent, so if your tenant doesn’t pay, you won’t necessarily be able to reclaim the losses through the service. However, they will usually attempt to chase your tenant for the arrears, which can still be useful.

The more comprehensive (and expensive) packages may include legal cover, “rent on time” guarantee (so even if the tenant fails to pay rent, you will still get paid regardless).

The important point to remember is that rent collection services are not all the same, so it’s best to look through the various options and choose one that will meet your requirements.

Rent Collection Service Providers

There are many rent collection companies and services to choose from, you only have to Google around to get swamped by the options. To make your search a little easier, I’ve highlighted three pretty cool solutions, all providing very different propositions.

One of the most comprehensive rent solutions I’ve come across is offered by an online letting agent called LettingAProperty.com. They’re one of the few that actually “guarantee rent on time”, even if the tenant defaults on rent! Note, this isn’t the same as a RGI (Rent Guaranteed Insurance) policy, where you have to file a claim and then wait for the claim to get approved before receiving a payout. “Rent on time” literally means you will receive rent on the day you’re meant to, always. So if you want rent on-time, not a bad choice at all.

Another recommended and nifty rent collection service is offered by TheHouseShop.com– their package isn’t as feature loaded as LettingAProperty’s, but it’s particularly interesting because it’s currently the only service which feeds rent payment data directly to Experian (the credit scoring company) in order to build a “RentScore” for the tenant. Essentially, the system encourages on-time rental payments from tenants, because it helps build their credit rating every time they make rental payments on time (or hinder their credit rating if they don’t).

Lastly, OpenRent, one of UK’s biggest online letting agent, recently launched a rent collection service, which is part of their “Rent now” package. And no, your eyes aren’t playing tricks on you- it really is £49 (inc VAT) for the year.

21 Comments- Join The Conversation...

My tenant set up a standing order into my account for rent. However, that's not much different to sending a cheque really (unless the sending bank is part of the fast BACS transfer scheme).

Dan

1

Jools24th May, 2009 @ 20:48

What about the big F*** off dog and the mac 10? Surely a more reliable way of achieving yield?

Jools

2

Michelle Green4th June, 2009 @ 07:06

I am thinking about accepting Paypal as a means of collecting rent. Yeah there will be fees, but no more than a property management company would charge I suspect.

3

Steve1st July, 2009 @ 15:30

Sounds like you've got some tenants on government assistance like I do. For me this has been a blessing and pain all at the same time. I've intentionally priced my rents higher than the maximum living allowance ($620/month where I live) so I can attract better quality tenants. However, I'm often left with a shortfall even though the tenant only needs to come up with less than $100.

Worse yet most of these tenants don't seem to have bank accounts (I didn't even think this was possible!). So this means I can collect cheques direct from the tenants (If they bank), get a direct payment from social assistance, then make up the shortfall from the tenant, or collect cash.

While I've often had to deal with bounced cheques, I find cash to be incredibly inconvenient. While grabbing rent once a month shouldn't take more than 30 minutes on paper, it's next to impossible to coordinate schedules for all of my tenants and me. I end up making multiple trips and it can sometimes take days to coordinate times. Which leaves me with the issues of getting my money in the bank before mortgages are due.

I like cheques. If I have post-dated cheques from everyone I make one trip to the bank on the first and all is done. Easy.

4

Tariq28th July, 2009 @ 19:54

Hi,
I am pretty new to all this and have previosley received rent in cash however, i am now considering standing order with a new dss tenant.

Are there any tax implications with receivng rent by standing order?

Many Thanks

5

The Landlord29th July, 2009 @ 07:29

Hi Tariq,
You should pay the same amount of tax regardless of which method you choose to collect rental.

Kind regards

6

John30th July, 2009 @ 11:19

Do you need to set up as a company to arrange rent collection via direct debit?

7

The Landlord30th July, 2009 @ 11:29

Nope, you don't, John.
Just give your tenant your account number and sortcode, and that should be fine.

Cheers.

8

NewLandlord20th September, 2009 @ 20:32

I have student tenants so I either take three cheques a year (just after student loans are paid) or standing order.

Are you sure you are talking about direct debit? I asked my bank about them and they cost £2000- £3000 to start up because the vank guarentees your payment and puts the onus on the tenant (hence the large setup fees). I think what you are describing is the standing order.

9

Sherrie28th October, 2009 @ 01:19

I have a potential tenant who has a history of late rent payment, I want to set up a method to collect directly from the tenant's credit card. Does anyone know how this can be done?

Thanks.

10

Victoria Whitlock22nd October, 2010 @ 12:15

I try to avoid taking cheques - if they bounce, you get charged by the bank. Plus there's all the hassle of cashing them and I worry they'll get muddled up with tissues in my handbag or I'll end up using them as scrap paper for shopping lists or something by mistake. Too fiddly.

Standing orders or direct debits are far easier. Insist the tenant sets up the payment to ensure it arrives on the due date, so avoiding delays with bank holiday/weekend closures etc.

Or take cash. I love cash. Cash is King.

11

Jay13th October, 2011 @ 09:31

Hi, I have just recently become a landlord and so am very new to this. I had a third party collect the rent on my behalf (10% managment fee) but have decided to manage it myself as I see to all the repairs etc, the tenant has asked to pay cash, but would direct debit if i prefered, but I'm not sure of the implications and legalities of cash payments. for example, do I have to declare this to the tax man? Would very much appreciate advise from the more experienced of you all, cheers.

12

Cardifflandlord13th October, 2011 @ 15:13

@Jay: Sorry Jay, is that a serious question about whether you have to declare cash payments to the tax man? Surely it's not April 1st and I have been catapulted into some parallel universe?

If you don't know the answer to that then I'm afraid you have no hope at all of becoming a Landlord with all the legal requirements and responsibilities that go along with it.

Keep paying the 10% because you are seriously going to be be so far out of your depth in this industry and whilst I am prepared to help people with genuine issues - if you can't be bothered finding out yourself what your statutory obligations relating to tax and no doubt EPC's, Public Liability Insurance, Gas Safety, Fire Safety and Electrical Safety not to mention your responsibilities to your Tenants and theirs to you then I'm afraid you are on your own.

Go and speak to an accountant who will help you - oh and yes, you have to pay for their services.

F*** me backwards - and I thought nothing would cheer me up today!

13

Jay13th October, 2011 @ 21:49

thanks for the advise cardifflandlord, the tax question was a bit of sarcastic fun but I was serious about advise from someone with experience to someone (like myself) who is new to the buisness, as for EPC's and everything else you have mentioned it is all in order and has been before I allowed any tenant to use my property, I was simply asking what is prefered by experienced landlords. Thanks anyway, I have also been cheered up today because your not going to beleive this.... my sister is an accountant and no, I dont have to pay.

14

Leanne2nd November, 2011 @ 21:32

If there are landlords on here struggling to collect rent, my new payment service may be of interest. Email me for further info!

15

Direct Debit Collect2nd September, 2013 @ 06:58

Being financial services provider my opinion will be surely to go with Direct Debit Collection which is applicable for any kind of monthly collection whether is house rent, if somebody has given his car for rent in monthly basis in that case also he or she can receive rent through this

16

nancy10th March, 2014 @ 04:31

Hi,

I am a new landlord, and I have just evicted my !st tenant. I asked her to leave as a family member requires the unit. The problem is my tenant is also a co-worker, and she left owing me last month's rent. I did not ask her for 1st and last, because she is a co-worker. Do you have any suggestions?

17

Gary13th April, 2014 @ 23:45

Great advice on various rent payment methods. I wanted to offer my tenants the most ways to pay to ensure I get paid on time and every time. I stumbled on great site @ www.rentxchange.ca. It offers all the payment options you talked about. Tenants can pay using cash, check, credit card, online or even set up automatic payments and I get all payments directly deposited in my bank account. Thanks for this article or I would have never found this site!

18

Lindsay12th August, 2014 @ 12:30

Do I set up a Standing Order or a Direct Debit with my tenant for rent collection? Is there a standard template form available to download?

ALSO: Do I collect rent up front (for the month we're entering) or in arrears? I suspect up front but does that mean I collect the deposit AND 1 months rent before the tenant moves in? Do I take it on the day they move in, or in advance?

Any advice is appreciated!

Thanks :-)

19

John Raftery29th September, 2014 @ 15:54

You can't just set up a DD with anyone. You will need have to have a business turning over about £100k a year. DDs are for organisations only. You could always use a rent collection agency. I use rentcollection.co.uk they collect by DD for you and maintain all your rent statements for about a tenner a month. They also chase bad payers for that.

20

Amukoto Prince R11th April, 2016 @ 11:23

i think this site is the best.....it will help me out alot for my assessment...thankx.

A little introduction...

I initially started this blog because I wanted to document my every step to becoming a BTL landlord,
in hope that others' (with more experience) would discover my dronings and have the heart to help me - a beetle on its back - along the way. I literally didn't have a clue about being a landlord
when I started this website.

Having expanded my property portfolio over the years, I now occassionally blog about my bitter life as a Landlord, so fellow Landlords (prospective, new, and seasoned) can learn from my few successes and frequent failures.

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